The Fed is forecast not to lower interest rates this year

On April 16, Deutsche Bank (Germany) forecast that the US Federal Reserve (Fed) would keep interest rates unchanged in 2026. The reason is inflation risks due to oil prices in the Middle East conflict, US growth is still vibrant and the labor market is tight, leaving the Fed with little room to loosen policy.

To lower interest rates this year, the US labor market needs to weaken somewhat and inflation cools, analysts at Deutsche Bank said. Previously, this bank expected the Fed to reduce interest rates once in September.

Some other banks, such as JPMorgan and HSBC, have also ruled out the possibility of the Fed cutting interest rates this year. However, Goldman Sachs, Morgan Stanley and BofA Global Research still expect the Fed to lower interest rates twice, starting in September.

In the past few days, some Fed officials have warned that the Middle East conflict is increasing inflationary pressure. High levels of uncertainty also make it difficult for them to signal clear next steps.

In the March policy meeting, the Fed kept the reference interest rate unchanged at 3.5-3.75%. Fed Chairman Jerome Powell at that time commented that the impact of developments in the Middle East on the US economy was still unclear. “In the short term, rising energy prices will push up general inflation, but it is too early to assess the scale and duration of the potential impacts on the economy,” he said.

Fed officials forecast that policy could be loosened again this year, by 25 basis points (0.25%). The next meeting of this body will take place at the end of April.

Data firm LSEG said the market is currently betting that the probability of the Fed not reducing interest rates this year is nearly 70%. Besides, “the possibility of raising interest rates this year is no longer low, but we do not think this will happen in 2026”, Deutsche Bank commented.